“This technology cannot be stopped,” says Argentina’s top regulator of cryptocurrencies

Argentina’s top regulators are overwhelmingly backing crypto, with a senior official in Javier Milei’s government saying the technology is unstoppable.

“The reality is that this technology is unstoppable — it’s growing at an unprecedented pace — and as regulators, we have to take our role seriously so we don’t get left behind,” said Daniel Vitolo, Argentina’s inspector general of justice, a high-ranking position in the central government of libertarian President Javier Milei. He said “the whole country would benefit” from authorities getting on board and implementing the pro-crypto framework that the country’s Crecimiento community is experimenting with.

Crecimiento is a grassroots movement of crypto natives that wants to establish a haven for crypto and tech founders in the Argentine capital, Buenos Aires. The goal is to work with the new Argentine government to provide incentives for the crypto sector, including a favorable tax structure, funding, a less cumbersome business process, and attract more foreign investment.

In August, Crecimiento hosted a month-long pop-up city in Buenos Aires called Aleph. Its short-term goal is to create a sandbox, or safe space created by regulators to test different processes, frameworks, and elements of what could become a larger piece of legislation later, if successful. These types of time-based digital cities have been tested extensively around the world, from Prospera in Honduras to La Union in El Salvador.

In the longer term, some of its organizers are advocating for the development of a special economic zone in Buenos Aires, intended to foster the technology industry, as well as a national framework for crypto in the country.

Global potential

This mission makes sense for Argentina. For decades, the country has suffered from double- and triple-digit inflation, capital controls, a complex business process, and a massive brain drain. This reality has given rise to one of the largest cryptocurrency communities in the world, with Argentina home to some of the region’s largest companies and a huge community of cryptocurrency developers and enthusiasts.

But what’s happening with Aleph and Crecimiento has the potential to have repercussions that extend beyond the country’s borders.

If successful, Argentina could become a haven for founders, developers, artists, and investors in the cryptocurrency and broader tech sector. With regulators like Vitolo and others touting the benefits of the technology, it may only be a matter of time before capital and builders begin to flow to South America in search of a favorable regulatory environment to continue growing the ecosystem.

Special Economic Zone

Aleph was introduced as an ephemeral city, that is, a temporal digital city that aims to experiment with a legal framework and work with local businesses to determine what needs to happen for a broader, more tech-friendly environment to emerge.

“These ephemeral cities create an environment for ideas to spread and projects to develop,” said Juan Benet, founder of Protocol Labs, one of the main companies supporting the Crecimiento movement, in an interview before Aleph’s launch. The idea is to create a physical place where people – founders, developers and enthusiasts – can come together “in close proximity” and discuss problems and potential solutions to many of the issues affecting a specific region or country.

Benet is not only optimistic about pop-up cities, but also about the concept of special economic zones (SEZs), a project that Aleph could implement.

SEZs are specific areas where business and trade laws differ from the general framework of the country. They aim to increase employment, attract external capital, create jobs and experiment with different administrative structures. To attract businesses and investors, they offer less restrictive tax frameworks, less restrictive business processes, labor regulations, specific import and export laws, etc.

There are hundreds of special economic zones around the world, from Chile to Dubai to Montenegro. Benet added that he hopes to see Aleph become a special economic zone.

“This could include creating new startups, new products, new social structures, or bringing back a lot of the amazing technology that Argentines have created over the years,” he said.

Local sandbox

As part of Aleph, a local sandbox is currently being built to test much of what Benet and the team of local Argentinians in charge of the city have been testing.

Milagros Santamaría, head of Crecimiento’s legal team, told The Defiant that hundreds of local businesses have already signed up to the sandbox. They have experimented with accepting different tokens as payment, as well as using QuarkID, a self-sovereign ID application that allows consumers and merchants to maintain control of their data during transactions.

QuarkID is the digital trust framework developed by the Buenos Aires city government that creates a new digital identity system and gives people control over their information, with a security anchor through blockchain.

Morfi, the most used token in the Aleph ecosystem, has been used in more than 2,100 transactions and has processed hundreds of millions of Argentine pesos, with a clear upward trend.

According to Santamaría, once the month is over, his team will prepare a report for the Argentine Chamber of Financial Technology. This report will be added to a document that will then be presented to Congress to develop legislation at the federal level.

The sandbox will help us “know which documents businesses will ultimately need, which ones are not, while helping authorities determine what should or should not be included in a broader legal framework,” she said.

Santamaría said his team has already received feedback from the country’s SEC, the CNV, including on what might constitute a token offering.

The goal of Crecimiento has been to bring together a diverse set of stakeholders from the Argentine regulatory environment to help address every aspect of the business process; from paperwork to tax implications.

“This is not a short-term effort, nor is it something that is unique to Aleph, but we are really building with a 30- to 40-year horizon in mind,” Santamaría said.

That is why they invite all the regulators, the Central Bank of the country, the CNV, the Financial Information Unit (UIF in Spanish) and the members of the central government of Milei to build.

Current regulatory framework

The move builds on Milei’s pro-business stance, although he has yet to make any explicitly pro-crypto remarks.

That being said, the country has implemented regulations that favor the digital asset sector. In late December, Argentine authorities authorized the use of Bitcoin or other cryptocurrencies to settle contractual agreements.

Last March, authorities created the Virtual Asset Service Providers Registry, requiring companies that process more than ARS 27 million, or $30,000 per month, to register. The aim is to combat money laundering in the country.

However, the central bank last year banned banks from offering their clients exposure to cryptocurrencies, a mandate that has not changed.

Regulation day

Last week, regulators and key figures at Aleph’s Regulatory Day said they were supportive of the digital asset space, reinforcing the idea that authorities are ready to grow the ecosystem.

Among them were the president of the country’s SEC, Roberto Silva, Vitolo of the General Inspectorate of Justice, Mario Adaro of the Supreme Court of Mendoza, Diego Fernández of the local government of the city of Buenos Aires, and others.

Vitolo said there was a need to update the technology’s current regulatory regime, which has already seen some recent changes. Three weeks ago, authorities allowed users to tokenize warrants and depositary receipts.

Alongside Vitolo, the president of the Argentine SEC (the CNV), Silva, agreed and stressed that the CNV sees the need to update the regime surrounding tokenization, with the aim of bringing a variety of real-world assets (RWA) on-chain.

Silva, the US equivalent of Gary Gensler, offered soothing words to listeners who might be concerned about possible overreach by the authorities.

“We will respect the law, but we will not over-regulate the sector either,” he said.

A project for the country

Organizers hope what happens in Aleph will offer a clear perspective for the rest of Argentina.

Buenos Aires is a very innovative city, Santamaría said, but many others are looking to Aleph to see what might come out of the special economic zone that is being built. “Córdoba, known as the rebel city because of its avant-garde vision, is very technologically advanced and is probably following closely what is happening here,” she said.

Mendoza too. Not only do Santamaría and three other members of the Crecimiento team come from this small western town, right next to the Andes, but also a member of the Supreme Court of Mendoza, Mario Adaro, who was also present last week at the Regulation Day.

Argentina is becoming a model for cryptocurrency-friendly innovation, with local authorities agreeing on two key points: They want the industry to grow, but they don’t want it to get out of control.

For Santamaría, the goal is clear: “to offer predictability so that companies come and stay.”